Real estate in Sub-Saharan Africa for the first-time investor

In real estate investment, timing the market is the main driver of returns. Therefore, the demonstration of investment skills and its contribution to value is meaningful. The efficient allocation of scarce investor capital requires making an informed choice among funds based on an adequate assessment of their relative risk and reward profiles. However, in contrast to developed markets that have been well researched, the drivers of the private real estate return-generating process in the Sub-Saharan Africa remain insufficiently researched. Data on rents, yields and property rights are hard to obtain.

This paper examines the investment case for private real estate funds in Sub-Saharan Africa. Special attention is placed on the current investment potential and risks faced by the international investment community as they look into deploying capital in the continent.

Despite the fact that GDP per capita in Sub-Saharan Africa accounts for only 17 percent of the global figure, the region is growing at a faster pace than the world. By 2040, Sub-Saharan Africa is expected to close the gap to the world. Nigeria, our forecast shows, should see GDP per capita parity as early as 2025.

Contributing to GDP growth is rising commodity prices, especially oil in Nigeria and Angola where it is the main export product. Although commodity prices have since plateaued or fallen, the region’s demography continues to fuel rising output and consumption. The quality of life of the African people has improved and a new consuming group has emerged: the middle class.

With the GDP of Sub-Saharan African economies expected to grow almost twice that of the world’s growth, a population boom and overall increased consumer power, the international real estate investment community is closely assessing the potential of real estate investments in Sub-Saharan African countries.

The long-term prospects of real estate investment in Sub-Saharan Africa are appealing. GDP is expected to grow, backed by a young population and a fast growing middle class. However, currency instability, land ownership risk, political risk, lack of transparency and corruption underpin the main issues relating to private real estate investment in the region.